What is the Difference Between Equity and Shares?
🆚 Go to Comparative Table 🆚The main difference between equity and shares lies in their definitions and the rights they represent.
Equity:
- Equity represents the actual value of a shareholder's stake in a specific investment.
- It is typically referred to as shareholders' equity (or owners' equity for privately held companies) and can be found on a company's balance sheet.
- Equity is calculated as a company's total assets minus its total liabilities.
Shares:
- A share is a partial ownership in a company.
- Shares are issued by companies to fulfill their initial capital requirement.
- Shares can be classified into different types, such as common stock, preferred stock, and equity shares.
Equity shares, also known as ordinary shares, are a part of the company's equity and represent the maximum entrepreneurial risk. They come with voting rights, allowing shareholders to participate in the company's management and decision-making. Equity shares are considered a long-term source of financing for companies.
In summary, equity represents the value of a shareholder's stake in a company, while shares represent the partial ownership in a company. Equity shares are a specific type of share that comes with voting rights and are considered a long-term source of financing.
Comparative Table: Equity vs Shares
The key difference between equity and shares is that equity represents the ownership in a business, while shares are the units of the company's capital. Here is a table summarizing the differences between equity and shares:
| Equity | Shares |
|---|---|
| Represents ownership in a business | Represents a portion of the company's capital |
| Involves shares, stocks, reserves, and own funds | Can be easily traded in the market through stock exchanges |
| Primarily raised to help the entity raise money | Investments are made by traders in the stock market to speculate and earn short-term price gains |
| Broader term, as it includes other components like stocks, reserves, and own funds | Part of equity, as shares are issued to raise capital and dilute ownership |
Equity shares represent the ownership of a company and are accompanied by voting rights, while preference shares have preferential rights to the company's profits and assets.
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